What is an Interpleader for a Real Estate Transaction?

In the video, attorney Roy Oppenheim explains the concept of ‘interpleader’ typically used in real estate transactions. This term is used when a third party, like a real estate escrow agent, holds a deposit and is uncertain whether to return it to the buyer or pass it to the seller. To avoid the responsibility of deciding who receives the funds, the third party can engage in an ‘interpleader’, where the money is given to the court for distribution. The court then decides who receives the funds. The legal fees for the interpleader come out of the initial deposit, reducing the amount available for distribution. This approach alleviates the stress for the escrow agent, although it can lead to additional legal fees.

Hi, Roy Oppenheim for Oppenheim Law. Sometimes people ask me, what does interpleader mean? What is an interpleader? An interpleader typically comes into play where someone’s holding a deposit, and they don’t know if they’re supposed to give the money back to the buyer, or they’re supposed to give it to the seller because the buyer defaulted. And so, if you’re a real estate escrow agent, you have to take that money, and either hold it, or you implead it into the court, in a proceeding called interpleader and that you said, tell the court, “Here, hold the money, and you figure out who gets this money because I don’t want to be responsible.” And when you do interplead it, the nice thing is that your attorney fees will get paid off the very top of the money.

So, let’s say you’re holding $50,000 as a deposit, you interplead it, and you had $5,000 in legal fees. Guess what? There’s only $45,000 left because your legal fees of that $5,000 will come off the top, and then the judge will decide who gets that 45. We, as a title company, try not to interplead that money because we feel bad for eating up those thousands of dollars through legal fees. But sometimes we will have other title companies or other folks who are holding a deposit, and they don’t want the stress, and don’t want to hear of it. They’ll basically say, “Could you interplead the money for us?” And yes, we will then interplead it, and then our legal fees will get paid off the top of that deposit. So, that’s what interpleader is. Roy Oppenheim, “From The Trenches.”